It's no secret that the federal government is running up a huge budget deficit. The media has done a great job of showing the President proclaiming that giving tax breaks to the rich is irresponsible. What has not received much publicity is a proposal drafted by the presidents Deficit Reduction Commission for Comprehensive Tax "Reform". (Reform sounds better than increase) Page 26 of the proposal covers "Individual Tax Reform" where there are two items near and dear to homeowners. If enacted this "Reform" would:
• Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
• Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
I have heard people try to downplay the issue by pointing out that only those with mortgages over $500,000 would be affected. What about the interest on second homes, home equity loans, and state and local tax deductions. Eliminating these deductions would only impair the ability of Americans to own or invest in real estate and cause real estate values to decline even further. As word of this proposal spreads potential home buyers are beginning to fear that the mortgage interest deduction will not be available to them. It has also created uncertainty among current home owners who fear that they will not be able to claim the deduction and that their homes will lose even more value.
There have been three previous efforts to change mortgage interest tax policy in 1986, 1996, and 2005. Each of those attempts resulted in a detrimental impact on housing values and the economy. Based on this history NAR estimates that, if enacted, these provisions would further reduce home values by 15%. Clearly this would be devastating to an already beleaguered real estate market. Most people understand that the economy won't improve without a stable housing sector.
I agree that the federal deficit is a serious matter that must be dealt with. Eliminating wasteful government spending and a ban on earmarks is a good place to start. Tax policy must continue to nurture home ownership as it has since the inception of the Internal Revenue Code. Hands off the Mortgage Interest Deduction!
To read the entire draft click Deficit Reduction Commission Proposal